RAJESH MULCHAND JOSHI,MUMBAI vs. ITO 12(2)(4), MUMBAI

Brief facts are, assessee an individual filed his return of income for the impugned assessment year under consideration on 5th September 2008, declaring total income of ` 1,24,328. During the assessment proceedings, the Assessing Officer noticed that the assessee in the computation of income while computing the income under the head house property though has shown income from the house property being SOP as nil but claimed interest payment of ` 4,91,571. The Assessing Officer was of the view that as per section 24(b) of the Act, the maximum deduction allowable on account of interest on borrowed capital is ` 1.50 lakh. He, therefore, restricted the deduction to ` 1.50 lakh while disallowing the excess claim made by the assessee. On the basis of disallowance made, the Assessing Officer initiated proceedings for imposition of penalty under section 271(1)(c) of the Act by issuing A notice to show cause. In response to the show cause notice issued by the Assessing Officer, the assessee requested for dropping the penalty proceeding but the Assessing Officer rejecting the explanation of the assessee imposed penalty of ` 89,954 under section 271(1)(c) of the Act.

The learned Commissioner (Appeals) also confirmed imposition of penalty under section 271(1)(c).

Learned Authorised Representative submitted before us, the excess deduction claimed on account of interest payment was a bonafide mistake and human error. Therefore, there should not be any imposition of penalty under section 271(1)(c) as the assessee did not make a deliberate attempt to either conceal its income or furnish inaccurate particulars of income. The learned Authorised Representative submitted, there is no dispute to the fact that the assessee has made payment of interest of ` 4,91,571. Hence, the mistake being a bonafide one should not lead to imposition of penalty. For such proposition, he relied upon the following decisions:–

Learned Departmental Representative, however, justifying imposition of penalty submitted, if assessee’s case would not have been selected for scrutiny, the assessee would have got away with excess relief claimed. In this context, he referred to the decision of the Hon'ble Delhi High Court in CIT v/s Zoom Communication Pvt. Ltd. [2010] 237 ITR 510 (Del.), relied upon by the learned Commissioner (Appeals).

We have considered the submissions of the parties and perused the material available on record. As could be seen the basis for imposition of penalty under section 271(1)(c) is excess deduction claimed on account of interest on borrowed capital in respect of self– occupied property. However, it is not disputed that the assessee has paid the interest amount claimed as deduction. It may be a fact that due to oversight or ignorance of relevant statutory provision, the assessee had claimed the excess deduction on account of payment of interest payment of the self–occupied property. However, for claiming such deduction, no malafide intention can be imputed to the assessee. As such deduction claimed possibly could be on account of human error, no penalty can be imposed under section 271(1)(c), as held by the Hon'ble Supreme Court in Price Waterhouse Coopers Pvt. Ltd. (supra). In view of the aforesaid, we delete the penalty imposed under section 271(1)(c) of the Act. Ground raised by the assessee is allowed.

In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 22.04.2016